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In an era of cost control and low inflation, recent announcements of dramatic increases in the price of paper are an obvious cause for concern for the printing industry.
In the first quarter of 2010, paper prices have risen by as much as 12% and there are no immediate signs of relief within the UK printing sector.
Why have paper prices soared? There are several issues that have combined to drive prices up:
Increasing production costs
The rising $ (USD) and increasing pulp prices have been combined with a global increase in energy costs due to the ballooning cost of crude oil. This has inevitably led to rising transportation costs and increased freight rates for both pulp and paper.
Reduced wood and pulp capacity
The hard winter in Russia, Northern Europe and Southern America has led to a global shortage of wood. A significant earthquake in Chile has compounded the problem, affecting 20% of global short fibre pulp capacity. As a result, pulp stocks are currently at their lowest levels for 20 years.
Reduced paper capacity in Europe
As well as underlying structural capacity reductions in coated and uncoated paper since 2007, there have been additional factors such as the Finnish port strikes and the Condat Mill strike that have had a considerable impact on the European capacity. This has been further compounded by the fact that the UK is a less attractive market when compared to higher priced markets such as North America and Russia where increased demand is leading to restricted supply in Europe.
The net effect is that there is a restricted supply of pulp globally, but the shortage is especially acute in the European market.
Printing companies therefore face the likelihood of further price increases in the short term and the real risk of restrictions on supply.
In an industry where margins are already very tight, the likelihood is that their customers will have to share the increase in paper prices.
